Knowledge And Decisions

Objective statistics which apparently demonstrate the “need” for more service — the numbers of planes landing and taking off per hour, their waiting time in the air or on the ground, etc. — are completely misleading. There is no such thing as objective, quantitative “need.” Whether with airports or apartments or a thousand other things, how much is “needed” depends on the price charged. Just as artificially low prices under rent control caused the same population to “need” more apartments, so artificially low landing fees cause far more airplanes to be “needed” to transport a given number of passengers between two cities, in planes with many empty seats. With landing fees increased about twenty-five times, reflecting the true cost of landing a plane at Kennedy Airport, fewer flights per day would be made and a higher percentage of the seats would be filled on each flight. Few private planes with one or two passengers would be using up valuable landing space at major airports if they had to pay thousands of dollars per landing, though a little plane with only the pilot aboard may now choose to land at an enormously expensive airport, delaying thousands of other people circling around in a “stack,” because the price he is charged does not convey these alternative uses to him as effective knowledge that he must incorporate into his decision as to where to land.

The average commercial airliner in the United States flies with half its seats empty — which means that only half as many flights would be needed to transport the same number of passengers in existing planes. Actually, less than that would be needed, since (1) planes idled by more effective scheduling would tend to be the smaller planes, (2) future planes would average larger sizes if landing fees rose by the larger amounts reflecting the true economic cost of using major airports. Small private planes would have financial incentives to land at smaller airports, rather than add to the congestion at major airports serving a large volume of commercial air traffic. In short, under prices reflecting cost, the number of flights “needed” in the major urban airports would be less, with less noise to destroy millions of dollars worth of residential property values in the vicinity of airports, and less “need” to confiscate more of such property to expand airport facilities.

The pattern of overuse through underpricing — including zero prices for many government services — is not a case of “irrationality.” Its pervasiveness among the most diverse products and services, from airports to stamps, suggests a reason for it, not random caprice. It is completely rational from the standpoint of maximizing the well-being of the decision making unit (airport authorities, postal officials, TVA executives, etc.). When discussing under-pricing policy, more “need” can always be demonstrated “objectively” than under market pricing, which would convey knowledge that would cause more economical use of whatever is being sold.

Some idea of the complications insulating regulatory agencies from feedback from the affected public may be suggested by the fact that specialists studying federal regulatory agencies “cannot even agree on the number” of such agencies, although “it is thought to be over 100.”²⁸ A senator critical of regulatory commissions claims that simple “common sense” is “rare” in many of them, and then characterizes them as “undemocratic, insulated, and mysterious to all but a few bureaucrats and lawyers.”²⁹ Such criticism misses the point that the agencies’ own interests could hardly be better served than by being so incomprehensible to outsiders that even a United States senator with a staff at his disposal cannot find out precisely how many such agencies there are, much less exercise effective legislative oversight over their activities. The costs of regulation to the public — that is, its uneconomic effects as well as its administrative costs — have been estimated by the U.S. General Accounting Office at about $60 billion per year³⁰ — about $1000 for every family in the United States. The regulatory decisions which impose such costs may seem to lack “common sense” as public policy, but such decisions often make perfect sense from the regulatory commission’s own viewpoint — especially in favoring such incumbent special interests as have enough at stake to pay the high knowledge costs of continuously monitoring a given agency’s activities.

FORCIBLE TRANSFERS OF RESOURCES